Advertise On EU-Digest

8/22/17

US GDP grew by 2.6 percent in the second quarter, after a rocky first
quarter featuring just 1.2 percent growth.

A combination of rising
investment growth, an improved external demand environment, and plenty
of firepower coming from consumer spending suggests that the economy can
grow by 2.6 percent for the rest of 2017 and by 2.4 percent in 2018,
which is above the current trend.

This
brings investment growth in line with higher levels of business
confidence that have prevailed since the end of 2016.

A large portion of
investment growth occurred in the energy sector which may make it
difficult to sustain over the next few quarters unless oil prices
continue to show an upside. Still, equipment spending was an important
source of strength, which signals upward momentum for industrial
production over the next few quarters.

Consumer spending is also continuing to make large positive
contributions to GDP growth thanks to rapid employment growth and high
levels of consumer confidence. Further increases in spending may be on
the horizon if tight labor markets induce new acceleration in wages.

For now though, wage and price inflation are contained, meaning that the
Federal Reserve is likely to raise interest rates only once more in
2017. Capital costs are therefore unlikely to rise quickly which will
help perpetuate the current upward moment in investment.

Finally, improved global conditions are also helping US economic
performance in 2017, especially through exports and improved investment
opportunities. The Conference Board’s Global Leading Economic Index
suggests that emerging economies are also picking up some speed.

The
Euro Area has been growing above a 2 percent rate, its fastest pace time
since 2011. For the first time since the Great Recession, the US faces
an external environment where all major global economies are performing
well. Should these conditions persist, along with a weaker dollar,
demand for exports and a healthy profit environment for MNCs will be
sustained.